Foreign investors bought Hyundai Steel shares on a net basis for 40 straight trading days. Various interpretations are emerging over the backdrop of the near-daily "buy" orders of around 5 billion won.
According to the Korea Exchange on the 19th, foreigners made a net purchase of 2.9 billion won in Hyundai Steel shares the previous day. They showed buying dominance without missing a single day since Jul. 24. Foreigners' cumulative net purchases of Hyundai Steel also turned "positive (+)" since Aug.
A prime factor cited for foreigners' buying of Hyundai Steel shares is its low valuation. Although Hyundai Steel's stock price has risen about 77% so far this year, the base effect is large, and on a monthly chart basis it still falls below the five-year average. Even considering the distinct nature of steelmakers as capital-intensive industries, the price-to-book ratio (PBR, market capitalization ÷ net worth) remains around 0.26 times, leading to analyses that it is excessively undervalued.
The business environment also appears to be improving. Hyundai Steel has continued restructuring by selling noncore businesses, and there are assessments that the steel cycle has bottomed out due to China's production cuts. Hyundai Steel's operating profit on a consolidation basis turned to black in the second quarter. According to financial data company FnGuide, securities firms expect Hyundai Steel's operating profit to increase to 118.7 billion won in the third quarter and 189.7 billion won in the fourth quarter, improving profitability.
With the United States imposing a 50% tariff on Korean steel products, Hyundai Steel's decision to build a steel mill in Louisiana appears to have positively affected foreign investor sentiment. Hyundai Steel said it recently received many questions about its U.S. steel mill plan during an investor relations (IR) session for overseas investors.
Hopes also remain for Hyundai Motor Group's governance restructuring. In the process of severing the circular shareholding chain, Hyundai Steel could use its equity stake in Hyundai Mobis. The valuation of Hyundai Steel's 5,504,846 Hyundai Mobis shares (6% stake) is 1.7145 trillion won based on the previous day's closing price. As Hyundai Mobis' share price has risen, the stake's value has increased by more than 400 billion won from the start of the year, exceeding one-third of Hyundai Steel's market capitalization (4.9375 trillion won).
Nomura Securities said in a report, "As Hyundai Motor Group seeks ways to resolve its circular shareholding structure, Hyundai Steel is highly likely to sell its equity in Hyundai Mobis," and added, "If the sale takes place, it can be used to repay Hyundai Steel's borrowing fund and more."
Among the scenarios for Hyundai Motor Group's governance overhaul, there is also mention of the possibility of placing Hyundai Steel at the top of the group. With Honorary Chairman Chung Mong-koo holding 11.81% equity in Hyundai Steel, Chairman Chung Eui-sun could break the circular shareholding chain by securing the Hyundai Steel equity held by Kia and Hyundai Motor (17.27% and 6.87%, respectively).
However, the prevailing view is that the possibility is low, as foreigners and institutions have in the past assessed negatively the idea of an automaker being controlled by a steelmaker.
Because Hyundai Steel's share price had been sluggish for a long time, most retail investors are waiting for a rescue. Among NH Investment & Securities clients, the average loss rate of 17,686 Hyundai Steel investors was 13.61% as of the 16th. The proportion of loss-making investors was also 71.78%. The average purchase price for more than half is 43,648 won, about 18% higher than the current price. The top 20% by purchase price bought at 51,100 won or higher, and the share price must rise 38% further to recover principal.